Crude oil accounts for this latest 22-cent drop, having dropped precisely that much itself during the same two-week [image-nocss] period. Also depressing gasoline prices is depressed gasoline demand, still dropping but of course much less dramatically now.
Amazingly, wide retail margins throughout the price crash and painfully narrow refining margins on gasoline during most of that time are in contrast. Wide retail margins do not feel like prosperity, though, for those with seriously lower throughputs.
Inferior refining margin is "solved" by limited output. For refiners, the combination of lost overall gasoline demand with government mandate-forced ethanol sales means a massive forfeiture of 7.4-million gallons of pure (unblended with ethanol) gasoline.
Oil producers lost their big bonanza since the summer, and some of the higher cost projects have been delayed, such as in the Canadian tar sands. Yet, much Organization of Petroleum Exporting Countries (OPEC) oil is still profitable to produce at $35 to $40 per barrel.
OPEC meets in several days to constrain supply, but more important to near term oil prices will be how world oil demand evolves month by month. If OPEC's normal pattern of cutting output much less than it pledges to do prevails, and if oil demand growth in Asia slows further or disappears, some degree of glut will continue.
Until U.S. employment and general economic conditions allow for gasoline demand growth, extra-wide retail margins will be common, and should be defended by the industry. It's in retailers' interests that refiners, too, start achieving gasoline margins healthy enough to avoid capacity shortfall in future.
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